The cabinet has agreed on the largest budget reform of the past decade that should save CZK 80 bln in the next 3 years, Finance Minister Bohuslav Sobotka said after a cabinet session in Brno yesterday. But he conceded the planned measures will not suffice to reduce the budget deficit to a “satisfactory” level, i.e. below 4% of GDP by 2006.
Sobotka expects the biggest expenditure cuts from curbing wage raises in the state sector and from a slower valorization of old-age pensions. Sickness benefits paid out in the first 3 days of sickness should be reduced by half next year. The corporate income tax should gradually fall from the current 31% to 24% in 2006, and the tax on property transfers should be reduced from 5% to 3%.
Lower revenues from these taxes should be compensated with higher indirect taxes, notably the consumer tax on cigarettes and alcohol. Both analysts and the opposition describe the reform as incomplete.